A temporary stop is an instruction from an investor to a broker to exit a position in a stock after a certain period of time if certain provisions are met, allowing investors to limit risk and pursue other investment opportunities if necessary. The broker is not authorized to execute the order unless the stipulations set forth with the stop time are met.
Temporary stops are an example of instructions issued by an investor to a broker. Specifically, a time stop authorizes the broker to execute an order to exit a given position in a stock when a certain period of time has elapsed. The time stop generally carries certain provisions that must be met for the order to be executed.
The idea behind a temporary stop is to allow the investor to see if the value of the investment is moving in the desired direction. Often this means that the shares or other securities quoted are performing as the investor believed they would. In the event that the investment does not live up to expectations within a specified period of time, the broker is authorized to sell the shares or securities and pursue other investment opportunities on behalf of the investor.
Investors make use of the stop-and-go approach as a means of limiting risk with a given investment position. Since the primary objective of investing is often to make money, it is imperative that the securities purchased generate a return. By employing the stop method, investors can quickly unload options that do not provide a desirable level of return, and look for a different option that is likely to meet expectations.
It is important to note that unless the stipulations set forth with the stop time are met, the broker is not authorized to execute the order. As an example, an investor bought a thousand shares of a certain stock for $14.00 United States Dollars (USD) per share. A time limit is created, stipulating that if the value of the shares falls below $12.00 USD at any time within the first thirty days after the acquisition, the broker must sell the shares immediately. If the shares have fallen by no less than $13.00 USD per share at the end of that thirty-day period, the broker will not sell the shares, as the value did not fall to the specified level within the specified time period.
However, the investor is not bound by the terms of the temporary stop. If the investor chooses at any time to sell the shares during the period specified by the temporary stop, the provisional order will be considered null and void. The broker will essentially leave the time stop and follow the most recent orders issued by the investor.
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